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The Hydropothecary Corp has great potential in Quebec, says Eight Capital

It initiates with a 'buy' stance and C$3.50 target price, which is a fair way from then current share price of C$1.46..
The Hydropothecary Corp has great potential in Quebec, says Eight Capital
The firm is currently Quebec's only fully licensed cannabis producer (cultivation and sales)

Broker Eight Capital is bullish on The Hydropothecary Corp (CVE:THCX), which  is currently Quebec's only  fully licensed cannabis producer (cultivation and sales) and has started covering the stock.

It initiates with a 'buy' stance and C$3.50 target price, which is a fair way from then current share price of C$1.46.

Analyst Daniel Pearlstein says the firm should get "first crack" at supplying the regional recreational market.

"With Quebec's population now over 8 million inhabitants, being the sole fully Licensed Producer in the province could prove a lucrative opportunity," he suggests.

The group is well positioned to supply whichever method of distribution the Quebec government decides upon - likely through government-run stores via Société des alcools du Québec (SAQ), he notes.

It is also  undertaking a 250,000 sq ft expansion that would include a greenhouse, GMP laboratories, offices and warehousing.

This is expected to take the firm's annual production capacity to 25,000 kg, says the analyst, and be completed by summer 2018.

The company has commercialized two unique products within the ACMPR (medical cannabis access) rules, including the industry's only orally administered cannabis oil spray.

"As the rules and regulations on derivative products evolve, we believe LPs will be allowed to manufacture a number of the products currently available in more mature cannabis markets in the US for both the medical and recreational markets," says Pearlstein.

"We believe that product derivatives of the dried flower will be increasingly adopted by the medical community."

The broker's price target is based on a multiple of six times' 2021 estimated EBITDA (underlying earnings), implying a 44% return from the last close.

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